Yves Rocher is the 23rd largest manufacturer in the global cosmetics and toiletries market. The company produces high-quality, mass-priced products that it sells through its own strictly controlled retail network, and its botanical/organic offer is well-positioned in terms of market trends. However, its lack of scale, over-dependence on Western markets and a limited distribution system are posing risks to its development in an increasingly competitive market.

Solid product strengthThe company's strength lies principally in its offer. Its emphasis on wholly-natural plant ingredients puts it in line with cosmetics and toiletries market trends, and supports pricing to a certain extent. The company is also very active in terms of product development. New products are regularly unveiled, lines are updated, and this is accompanied by a high-profile promotional strategy, typically including BOGOF offers and rewards for spending, helping to drive volume sales.

It also helps build extremely strong customer loyalty, especially among younger segments of the consumer base, who respond positively to its value-for-money and fun positioning – the brand is claimed to be the product of choice for 65% of 15-24-year-olds in the French market.

At the same time, the company has an extremely credible functional portfolio, with an emphasis on anti-ageing and body care, and its outlets offer high levels of service alongside its products, including free skin diagnostics or treatment cabins, where consultants can demonstrate new products on customers using the 'spa' facility. This adds value to the brand, as well as giving consumers a sense of indulgence and brand complicity, further protecting Yves Rocher from the pressures of the mass market.

Self limitingHowever, the company has a number of aspects to its strategy that limit its competitiveness. Product distribution is tightly controlled and products are sold only via in-store stands, company-owned or franchised stores, catalogues and on-line. This means that the company has been unable to develop into dynamic emerging markets. Its determination not to risk brand equity has seen it left behind in markets such as China or Brazil thanks to a lack of appropriate retail channels or franchisees. As a result, its sales base is relatively narrow - 65% of its 2007 sales were generated in Western Europe, with a further 10% in North America, both regions where intense price pressure from mass retailers has inhibited the development of cosmetics and toiletries.

The company's mass position is also a problem. Mass products are being effectively mimicked by private label and discounter outlets, whose operators can typically replicate the function but not the cachet of premium brands, and therefore look to imitate mass brands. Supermarket organic brands are commonplace, and consumers are increasingly responding to these products' growing sophistication.

Many of these difficulties are directly related to the issue of scale, probably the company's core weakness. Yves Rocher is privately owned, and thus has limited capital development for expansion, an important developmental strategy in a cosmetics and toiletries market that has been characterised by acquisition and market consolidation. Yves Rocher has acquired a series of complementary brands including Daniel Jouvance and French direct-sales skincare brand Kiotis, which is great, but none of them add much to the company's operating scale.

Can Yves Rocher keep up with the pace?The company needs to act swiftly if it is to escape the increasingly intense price pressure in its core markets. It has a number of opportunities, thanks largely to the solid brand equity of its core Yves Rocher offer. International expansion must be a priority, with the company using its 'Frenchness' to build new consumer bases in emerging markets. It has started to make inroads here – it has opened around 170 stores across Russia, and opened in China in 2006, where it aims to have 80 outlets by 2009, while also targeting Mexico, India and Venezuela for future development.

There remains the suspicion that Yves Rocher may have left it too late for the development of new markets. Developing giant markets like China is prohibitively expensive, and again this points to the company's lack of scale. Globally and in Western Europe, the company saw its share and ranking slip in 2007, and it needs to make itself more competitive against the likes of L'Oréal. At the same time, a more vigorous pursuit of acquisition, or even joint venture, would allow the company to bulk up in the struggle to find new consumers.

The company could also increase its emphasis on functionality, with a more clinically aligned positioning. It has a strong history of product development, it claims to be the 'world leader in botanical beauty care' and its functional emphasis is well positioned for the needs of a global consumer base whose average age is rising. Within its domestic French market, it has the potential to hold on to more of its young supporters. Its unglamorous, 'girlish' offer could be adjusted so that fewer consumers trade up from the brand when levels of disposable income rise.

Yves Rocher is also set to undertake a brand overhaul, which it hopes will increase average store turnover by 15%. This includes a new logo and livery for the brand that will emphasise its connection with nature. The concept will be tested in France first, before being rolled out, if successful, across further markets. This may represent an opportunity for the company to redefine its position and improve pricing.